Letting go

There are strings attached

YI GANG, a deputy governor of China’s central bank, mused this week about shopping in Moscow in the 1980s. In the streets around Red Square, he said, visitors could find many big shops with identical low-quality goods. But among the drab displays were a few Yugoslav and Polish stores with better selections. These countries had experimented with competition earlier than the Soviet Union and the results were visible on the shelves of their outposts in Moscow.

Banks, Mr Yi suggested, are no different from stores. If governments control them too tightly—as China has long done by dictating the interest rates they pay and charge—banks do not compete with each other and thus fail to develop the range of financial products their customers want and need. So on October 23rd, at the same time as cutting interest rates to support stuttering growth, the People’s Bank of China (PBOC) announced that it was setting banks free. They can now offer depositors whatever interest they like, at least in theory. That removes the last formal restriction on rates.

China has been slowly liberalising...

via The Economist: Finance and economics Business Feeds

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